Given the extraordinary circumstances we are currently experiencing I have prepared a special video ‘rate update’ for today.
Please take 4 minutes to watch this special message below:
Current Outlook: Floating
Category: Rate Update
Mortgage rates at all-time low levels
Home Loan Rates
Mortgage rates are at all-time low levels. We have recommended a floating position the past couple weeks and that position has proved beneficial.
Volatility
The financial markets are experiencing extreme volatility. Yesterday the Dow Jones Industrial Average had its biggest one day drop ever……this morning US stocks are rallying.
Mortgage lenders are seeing interest rates fluctuate .125%-.25% intra-daily!
US 10-year treasury note
On February 21st the yield on the US 10-year treasury note, which mortgage rates tend to follow was 1.50%. Yesterday the yield touched .40% before moving higher. Yields have never been this low. Some analysts think they may go even lower.
Normally when the yield on the US 10-year treasury note moves up or down by .25% we expect mortgage rates to follow suit. However, there is currently a disconnect between mortgage rates and treasury yields because lenders are over capacity.
Refinancing
There is currently over $10 trillion of mortgage debt held by homeowners in the US. Estimates are that 50%+ of those loans would benefit from refinancing into today’s rates. In 2019 the mortgage industry originated less than $2.0 trillion of mortgage volume. Mortgage rates are not likely to decrease further until additional lending capacity is available.
Are you thinking of refinancing? Watch THIS VIDEO.
The week ahead
Although there are still economic reports being issued the financial markets are reacting entirely to developments on the spread of the Coronavirus. As mentioned earlier mortgage rates are being driven by lenders ability to absorb additional loan volume.
Given that rates are at all-time low levels I am recommending a locking bias.
Current Outlook: Locking bias
Mortgage rates at all-time lows, spread of fear may press them lower
Home Loan Rates
In last week’s update we took a “floating” stance because we thought fear over the coronavirus would continue to grow. That seems like an understatement now.
Mortgage rates established new all-time lows on Thursday last week and remain at all-time low levels today.
The Coronavirus
The Coronavirus continues to spread across the US and other countries outside of China.
Experts believe more US citizens currently have the Coronavirus than is being reported.The US is still shipping reliable test kits to medical officials around the country. Once those are deployed I expect the reported numbers of cases to rise significantly.
The spread of the virus will discourage consumers from spending, investing, and generating economic activity. Therefore, many analysts think this could trigger an economic recession. This is the primary reason why stocks are faltering and interest rates are falling.
The Fed
Earlier this morning the Federal Reserve cut short-term interest rates by .50% to try and combat the economic fallout from the Coronavirus.
The Fed controls the Federal Funds Rate which is not directly correlated to mortgage rates. Mortgage rates are the same today as they were yesterday before the Fed cut rates.
The week ahead
It’s the first week of March so we’ll get a fresh jobs report this Friday. However, the financial markets are not focused on the economic calendar given the significance of the coronavirus story line.
I expect volatility to continue over the course of the next few days and weeks. The bottom line is interest rates may very well continue to decrease in the weeks ahead.
Current Outlook: Floating
Mortgage rates at all time lows. Might they go even lower?
Home Loan Rates
Mortgage rates are presently at all-time lows which were originally established in 2012 and again in 2016. Could home loan rates go even lower?
The Coronavirus
Although new cases of the Coronavirus are slowing in China the number of people infected in other countries is growing. Furthermore, there is fear that some countries are underreporting the true number of citizens infected with the virus.
Fear over the spread of the illness is now having a significant impact on financial markets around the globe.
Impact on Financial Markets
On Monday US & European stock markets fell by ~3% and today they are off over 1%. Japan’s stock market fell 3.3% on Monday.
When stocks decline it tends to drive capital into the bond market which pushes interest rates lower. The US 10-year treasury note is now trading at 1.322%, an all-time low) and the yield curve is now inverted.
An article published by Bloomberg reported that unless economic activity resumes 66% of small to medium sized businesses inside China are poised to run out of cash within two months.
Home Prices
According to the S&P CoreLogic Case-Shiller Home Price Index appreciation picked up nationwide at the end of 2019. The report showed that homes increased by 3.8% during 2019.
With interest rates hitting all-time lows I expect home price appreciation will remain healthy for the foreseeable future.
The week ahead
There is plenty of significant economic data being reported this week. Specifically, I will be paying attention to New Home Sales (Wednesday), Gross Domestic Product (Thursday), Pending Home Sales (Thursday), and Personal Income (Friday).
However, news regarding the Coronavirus is the primary driver of interest rates at this moment. If it appears that the illness continues to spread then I expect stocks to continue to falter and mortgage rates to improve further.
Current Outlook: Floating
Mortgage rates remain low despite unfriendly news
Home Loan Rates
Mortgage rates are mostly unchanged from last week despite economic news which has not been rate friendly.
Jobs Report
Last Friday’s all-important jobs report showed that 291,000 new jobs were created during the month of January. Analysts had been expecting a figure closer to 160,000 new jobs.
Normally when the jobs report comes in hotter than expected it causes rates to rise but they barely budged following the release.
The Coronavirus
Fear over the Coronavirus may be keeping a lid on mortgage rate increases. There are now over 40,000 confirmed cases.
News reports this morning suggest the spread of the virus may be slowing which is positive news for the economy but ultimately may unwind the “flight-to-safety” in the financial markets which has helped interest rates hit recent lows.
If the spread of the virus begins to decelerate then I expect mortgage rates to increase modestly.
The Fed
Fed Chairman Jerome Powell testified in front of lawmakers earlier today that the Fed was monitoring the Coronavirus outbreak closely but that it was too soon to measure the economic impact it is having.
The financial markets currently think there is an 80% chance that the Fed will cut short-term interest rates at least once during 2020. Although the Fed does not directly control mortgage rates the comments they make can influence them.
The week ahead
The weekly economic calendar features plenty of scheduled Fed speeches. In addition, we’ll see the Consumer Price Index on Thursday as well as Retail Sales and Consumer Sentiment on Friday.
From a technical perspective I think borrowers have more to lose than to gain so will maintain a locking bias.
Current Outlook: locking
Mortgage rates shift and appear to be moving higher
Home Loan Rates
Despite the fact that the Coronavirus continues to spread mortgage rates appear to have hit an inflection point and are moving slightly higher.
Virus in China
According to reports there are now over 20,000 confirmed cases of the deadly Coronavirus (twice as many as this time last week). The disease continues to pop up across the globe but is primarily concentrated in China.
Home Loan rates have touched multi-years lows as fear has spread into the financial markets encouraging investors to seek “safe-havens” including the US fixed income markets. The additional demand has driven interest rates lower.
Stock Market
US stocks are rallying today as investors bet on the long-term resilience of the global economy. The Dow Jones Industrial Average is up over 1.5% (430 points) in early trading. When stocks rally it tends to put upward pressure on interest rates.
The Fed
As expected the Fed left rates unchanged when they met last week and their monetary policy comments were mostly unchanged from their previous meeting. At this point, I do not expect the Fed to hike or cut interest rates in 2020. Of course, this does not mean that mortgage rates will remain flat because the Federal Funds Rate does not directly impact home loan rates.
The week ahead
The economic calendar heats up this week. The most important release will come Friday when we get the all-important jobs report. Analysts are currently expecting 165,000 new jobs to be reported for January. There are also a couple Fed officials giving speeches throughout the week.
From a technical perspective it appears that interest rates may have bottomed out on Friday of last week and will start trending higher. I will shift to a locking bias but if the spread of the Coronavirus accelerates then rates will likely dip again.
Current Outlook: locking
Fear over Coronvirus drives home loan rates lower
Home Loan Rates
In the past 10 years there are only three times when mortgage rates have been lower than they are today. Interest rates continue to benefit from a “flight-to-safety” in reaction to the Coronvirus outbreak.
Virus in China
Over 4,500 cases of the Coronvirus have been reported in mainland China. There is still a lot of fear about the potential for the illness to spread and cause more severe health impacts around the globe. Thus far there have been less than 100 known cases of Coronvirus outside of mainland China.
Should the outbreak become more severe then we may see rates go even lower. However, if the virus appears to be contained then I would expect mortgage rates to increase slightly.
Stock Market
US stocks are off about 2% of recent highs which has pushed capital into “safer” havens including for mortgage-backed bonds which has helped drive mortgage rates lower.
Housing News
Earlier today the Case Shiller Home Price Index was released. The report showed that over the past 12 months home prices in the 20-city composite, of which Portland is included, increased by 2.6%.
Yesterday we got numbers for new home sales. Although the number of new home sales declined in December from the prior month, they were still up 10% for 2019. Given that there is still an acute shortage of housing in many of the major west coast metropolitan areas an increase in new home sales is welcome news.
The week ahead
It’s Fed week which means we’ll hear from the Chairman Powell on Wednesday. The Fed is not expected to change its tune regarding monetary policy but we always need to stand guard for changes to their wording.
Current Outlook: floating
Weakness in stocks is helping home loan rates remain low
Home Loan Rates
Although mortgage note rates are unchanged from last week the associated closing costs are slightly lower so in fact the rate environment has improved.
Stocks and home loan rates
Weakness in the stock market is helping mortgage rates improve. Why are stocks suffering?
Virus in China
Over 300 people in China and Taiwan have been infected with the coronavirus which health officials fear could spread into a pandemic. The outbreak is happening just before the lunar new year when over 400 million Chinese citizens are expected to travel.
The health scare is causing a flight-to-safety in the Asian financial markets. The Hong Kong stock index was down ~3% today which is creating demand for US-based fixed-income securities and driving down yields.
Stock Valuations
Citigroup conducts a statistical model which measures stock market sentiment. As of today the model has reached a level they define as “Euphoira”. 80% of the time when this model reaches this level stock prices are lower 12 months later. Furthermore, the last time this model hit this level was April of 2019 and stocks declined 7% the following month.
Furthermore, the Shiller Cyclically Adjusted Price to Earnings Ratio is currently back above 30 for the first time since 2018. Prior to 2018 the only other times stock valuations had reached this lofty level was 1929 and 1999.
Should stock prices retreat it will likely help mortgage rates remain low.
The week ahead
This week’s economic calendar is light. The only significant highlight is the existing home sales report due out on Wednesday.
Momentum appears to be on our side so I will recommend a floating position.
Current Outlook: floating
Can interest rates go even lower? A long-term view suggests they can…..
A long-term view of rates
If you took out a mortgage in the 1300s then it’s probably time to refinance. A new working paper from the Bank of England looks at a trend in global interest rates over the past eight centuries.
The findings show that interest rates have been trending lower over the past ~800 years.
Should the trend continue then our grandchildren receive interest (negative interest rates) when they borrow money.
Home Loan Rates
Looking at a much shorter-term…. Mortgage rates here in the US remain at very attractive levels despite an easing of geopolitical tensions between the US and Iran over the weekend.
Stocks and home loan rates
Corporate earnings season is upon us. For the next couple weeks publicly traded companies will release their 4th quarter earnings reports.
In aggregate, when earnings are stronger than expected it generally causes stocks to rise and hurts mortgage rates and vice versa.
Jobs Week
Last week’s all-important jobs report came in slightly softer than expectations. It showed 145,000 new jobs were created in December and the national unemployment rate of 3.5%. All in all, the report signals continued strength in the economy.
However, looking back over the past few decades every recession has started while the unemployment rate is at cyclical lows.
The week ahead
This week’s economic calendar is relatively light. On Thursday we get retails sales and on Friday it will be housing starts and consumer sentiment.
From a technical perspective mortgage rates are trading in a wide range. I will be watching the stock market for direction. If stocks rally then consumers should lock. If stocks trade sideways or decline then consumers can afford to float.
Current Outlook: neutral
Mortgage Rates Improve on Heightened Geopolitical Tension
Home Loan Rates
Mortgage rates are at the best levels in six weeks in response to a rise in geopolitical tensions between the US and Iran.
Geopolitical tension
Last week a top Iranian official was assassinated by a US airstrike. Iran has characterized the attack as an act of terrorism and has vowed a retaliation. I hope and pray that diplomatic efforts can ease the tension between the two countries.
However, the fear over a heightened conflict is causing uncertainty in the financial markets and encouraging investors to shift capital out of the stock market into safer havens such as US treasuries and mortgage-backed bonds.
A Flight to Safety
Should tensions continue to escalate then we may see US mortgage rates continue to decline as investors park their money in safer places.
Jobs Week
This week’s economic calendar is fairly light until we get to Friday when the all-important jobs report will be released. Analysts are expecting 160,000 new jobs created for the month of December. The previous month saw 266,000 new jobs.
Generally, when the employment report is stronger than expected it is bad for mortgage rates and vice versa.
Closer to home
Here in Oregon job growth in 2019 was slower than the previous six years. The Bureau of Economic Analysis is predicting slow and steady growth for the next two years.
Outlook
From a technical perspective mortgage rates look like they have more to lose than to gain. Therefore, I will recommend a locking bias. However, should tensions between the US and Iran continue to escalate (and I hope they do not) then we should float.
Current Outlook: Locking bias